While you can generally count on Social Security to provide you with a decent chunk of retirement income, those benefits alone won't pay enough to sustain you throughout your senior years. Rather, you'll need an additional income source to help ensure that you have enough money to not only cover your living expenses, but, ideally, enjoy this exciting period of life.
That's where personal retirement savings come in. If you make a point to set aside funds independently for your senior years, you may find that come retirement, you're actually in a pretty good place, financially speaking. And while there are different retirement savings plans you can choose from, many people opt to house their money in an individual retirement account, or IRA.
If you have an IRA, or are planning to open one soon, it's important that you make the most of it. Here's how.
1. Automate your savings so you stay on track
Right now, you're allowed to contribute up to $6,000 a year to an IRA if you're under 50. Once you turn 50, that limit increases to $7,000. The annual contribution limit could change next year, though, so stay tuned for that update.
Many people fund their IRAs on a monthly basis rather than write a check for a lump sum at the end of the year. And that's a smart approach to making contributions. If you put money in steadily, you'll be more likely to stay on track and hit those annual contribution limits, or whatever threshold you're aiming for.
That said, an even better way to meet your savings goal is to automate the process of funding your account. The good thing about having a 401(k) plan through work is that contributions happen automatically through companies' payroll departments. But if you find an IRA that offers an automatic savings feature, you can set up a similar arrangement where a portion of each paycheck of yours gets filtered into your retirement plan so you don't even have to think about moving that money around.
2. Go heavy on stocks
The great thing about IRAs is that unlike 401(k)s, they allow you to invest your savings in individual stocks. That gives you a prime opportunity to assemble a retirement portfolio that aligns well with your specific goals.
Of course, there's risk involved in buying stocks in an IRA, but the good news is that if you have a savings window spanning multiple decades, you're likely to come out ahead in the long run, even if there are years during which your investments lose money or underperform. Furthermore, if you're really not comfortable hand-picking stocks, you can always revert to stock-focused index funds instead. Those will allow you to benefit from the broad market's performance, and they're a good way to get instant diversification in your portfolio.
3. Consider a Roth
If you expect your tax rate in retirement to be higher than it is today, then a Roth IRA absolutely makes sense. With a Roth IRA, your contributions are made with after-tax dollars, but investment gains in your account are yours to enjoy tax-free, as are withdrawals during retirement.
If you're a higher earner, you may be barred from funding a Roth IRA directly, as there are income limits that come into play. If you're single, contributions are banned beyond an income of $140,000, and if you're married filing jointly, the same applies to earnings above $208,000. But even if you can't contribute to a Roth IRA directly, you can always open a traditional IRA and convert it to a Roth afterward.
The better a job you do of maximizing your IRA, the better it'll serve you during retirement. Follow these tips to supercharge your savings, grow your wealth, and ease your tax burden in time for your senior years.